Sunday, October 16, 2011

The 99 percent store

I'm occupying Blogger today for a few words about the self-styled "99 percent" who are taking over various public spaces to demand that the government take care of them and punish the greedy.

Greed is one of the seven deadly sins recognized by the Catholic Church since the middle ages. I don't know about the theology involved, but I suspect the seven sins are considered deadly because they are part of human nature that can only be held in check by a strong moral and ethical system. When such a system breaks down in a society, when people do not believe such failings are dangerous because they degrade the individual soul (which they don't believe in), you get a bumper crop of immoral conduct. Especially by the wealthy and powerful.

The supposed 99 percent (as opposed to the "1 percent" of the economic Mafia) make some good points. Congress used American taxpayers' money to bail out irresponsible banks that should have suffered the consequences of their folly. The Fed has kept interest rates ridiculously low, which benefits only institutions that can practice the "carry trade," borrowing cheaply and investing it for higher returns. Near-zero interest rates are a thumb in the eye of the old, the retired, and everyone else who wants to safeguard their savings while earning a decent yield.

But the occupiers do not understand either the American system of government (as the founders planned it) or classical capitalism. Both recognized human flaws as inevitable; but were designed to minimize the harm they could cause by pitting various interests against one another, by a balance of powers in government and competition in business.

Neither stratagem has ever worked perfectly, but through most of American history they have countered the worst excesses of self-interest and enabled just-in-time reform.

But starting with Woodrow Wilson and really going to town in Roosevelt's New Deal and LBJ's "Great Society" (the scare quotes because it is impossible for me to write those words without bitter irony), the balance of powers has broken down. A republic has been replaced by a top-down, centralized national government with a permanent bureaucratic class, a permanent lobbying class, and a semi-permanent career political class.

As one bit of fallout, the protesters and marchers have been marinated their whole lives in the belief that for every problem the solution is more government intervention and more laws. They may think they are speaking truth to power; in fact, the politicians they purport to detest have exactly the same view of the government's role. Our D.C. masters see their job, or keeping their job, as a matter of doling out favors to this group or that. The "occupying army" believe justice will be restored if they, instead of corporations, are the recipients of the largesse.

Valerie Green-Thomas sees them every day in her classes at the Bronx middle school where she is a special education teacher. Kids hungry, anxious, living in the dark because the electricity in their homes has been turned off.

“I really wanted to come to this country, but I am so disappointed,” she said in her Jamaican accent. “To realize that the dream is not the dream.”

Really, Ms. Green-Thomas? What was your dream? To come to America on a Teddy Kennedy ticket and be rich from then on, thanks to the people who created American prosperity? As for kids living in the dark, hungry, anxious -- let me put this as gently as I can: I don't believe you. You are a liar. You've learned how to push "compassion" buttons to arouse stupid white liberals and minority grudge champions.

A succession of speakers, including American Federation of Teachers President Randi Weingarten and Labor Secretary Hilda L. Solis, offered support. They warmed up the crowd for Sharpton, whose raspy voice rang out, “No justice? No peace!” as the crowd shouted along with him, over and over.

A woman stomped her feet in the grass, and people pumped their fists.

The United States Secretary of Labor out in the streets doing a warm-up act for Convict Al Sharpton (Google "Tawana Brawley")? I would have thought that someone heading a cabinet department would be above rabble-rousing at street demos, but this is Obamination.

Referring to Congress, Sharpton said, “If you won’t get the jobs bill done in the suite, we will get the jobs bill done in the street!”

Of political leaders fighting and cutting social programs, he warned, “This is not about Obama,” he boomed, “this is about my mama!” People laughed and repeated, “It’s about my mama! That’s right!”

Convict Al, if you haven't been taking care of your mama, you are a naughty boy. But we knew that anyway.

To get back to the main point: Crony capitalism needs to be reformed. Maybe we need restrictions on outsourcing jobs to Indonesia and such -- although the Occupiers will be the first to bleat when their cherished iPods and Game Boys cost twice as much when Made in the U.S.A. Bad banks and stupidly run businesses should be allowed to fail. Those that fail will be replaced by other and better ones. That's how capitalism is supposed to work. But the state-run economy the Occupiers call for, while it might temporarily raise the so-called 99 percenters' position in the hierarchy of handout recipients, cannot itself produce wealth. It can only equalize poverty.

4 comments:

There is no doubt that many big corporations like governmental regulation in the economy because they can afford the cost, whereas smaller competitors cannot. The latter go out of business, reducing competition in the market place.

However, the banks were not so much reckless in the subprime mortgage market as they were coerced, by the government, to make bad loans to minorities (and later to anyone) under threat of lawsuit by the government.

I'm not sure big U.S. corporations especially like regulation; over-regulation puts them at a disadvantage versus non-U.S. companies. Large corporations' competitors are generally other large corporations.

You are right that banks were under heavy pressure from the Feds to make loans to subprime borrowers. I suspect many of them knew the loans would come to no good end, which is why they collateralized and sold them at a fast tempo.

Government pressure to make unwise loans was indeed a factor in the mortgage crisis; I think an even bigger factor was the excessive belief that many financial executives and investors had in the ability of statistical models to rate the risk of individual loans and loan portfolios. This belief played directly into the incentive structure: if you were a mortgage-originating back and could package a portfolio of loans with a good rating and sell it, you didn't have to worry about whether the loans would *really* be repaid. The role of the media, including much of the business media, in feeding the housing-prices-will-always-go-up meme, should also not be underestimated, and the belief of large banks that if worst came to worst they would be bailed out surely also played a role.

But I think the excessive credibility given to the models was key....it seems that many of these were based on only 10 years or so of data and hence did not take account of full cycles and Black Swan effects.

Basically, MBAs with IQs of 130 and PhDs with IQs of 140 made lending decisions that an old-line banker with an IQ of 115 never would have made.

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MONEY

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